AdCare Health Systems, Inc. has signed a definitive agreement with a private seller for the asset purchase of four skilled nursing facilities in Arkansas and the acquisition of a 10-year lease for one skilled nursing facility in Missouri for an aggregate consideration of $20 million.
The five facilities have 506 beds in total (416 in Arkansas and 90 in Missouri), which generated revenues of more than $25 million in 2010. The transaction is anticipated to be immediately accretive to AdCare’s earnings when it closes as planned in approximately 90 days.
Combined with other transactions closed in 2010, plus three nursing homes expected to close by the end of the first quarter, AdCare’s estimated annualized revenue run-rate would exceed $175 million. This would represent an increase of more than 236% over the company’s previously announced estimated revenues of $52 million in 2010, and an increase of more than 555% over revenues in 2009 when it initiated its current M&A campaign.
“This M&A agreement is our first for 2011, and brings the total number of facilities we’ve put under contract to 25 since we began our M&A program at the end of 2009,” said Chris Brogdon, AdCare’s vice chairman and chief acquisitions officer. “These facilities also represent our first entrance into Arkansas and Missouri, which is in line with our expansion into the Southeast and Midwest regions.”
AdCare plans to finance the transaction through a combination of traditional bank financing and loan guarantees by the United States Department of Agriculture (USDA). The USDA guarantee is provided through a program developed by the federal government to supply long-term financing for rural projects at favorable rates.
Boyd Gentry, AdCare’s co-CEO, commented: “It’s important to note that most of the properties we have acquired to date have had revenue and cash-flow valuations below or in line with the valuations of other public companies in the skilled nursing sector. However, we believe we can apply our operational expertise and economy of scale to rapidly enhance the operations of our newly acquired facilities, and dramatically improve their financial performance and respective valuation.”
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